Dollar Almost Back at Parity Versus the Swiss Franc - It's Been a Long Ride!

If you want to short the Swiss Franc, you could short the FXF which moves in correlation with the currency.  The longer-term chart is bearish, although on the short-term chart (inverse above), round numbers, especially 1.00, have a strong tendency to be support or resistance especially after such a collapse in the CHF - rally in the USD - recently, so a pullback would not be unexpected in the short term, meaning you might want to wait a tad before shorting the FXF to insure it will not find support here.

S&P 500 Breakout Confirmed (SPY @ 128.60)

29 Oct 2011: There are few things as satisfying as watching patterns worked out over the years play out in real time.  After spending the week in Venice, I returned to find that re-entering the market in scale prior to our departure paid for our trip several times over:


SPY (128.60) is following through nicely on its breakout below 122.5 2 weeks ago.  Volume is heavier on up days than down days - an encouraging sign - and it is making a pattern of generally higher highs and lower lows.   The lows of the last 6 days are all above the breakout point.  
I have reached the point in life where I generally ignore fundamental news, not because it is not important but because it is so unknowable.  Markets discount the future, not the present, and most market bottoms occur when the news is bleakest and all hope seems lost.  What is commonly misunderstood as callousness on Wall Street (the capital markets rallying while unemployment remains high) is simply the smart money recognizing that the market is improving and taking positions ahead of confirmation through improvement in, among other things, a drop in unemployment.   In fact, the stock market remains one of the best leading economic indicators for that reason.
Focusing on the movement of prices and volume (technical analysis) almost exclusively is simply a recognition of some brutal market realities:
1.) most people, most of the time, are wrong;  following the crowd is
2.) financial news, especially of the breathless variety, is beyond useless - it's distracting because its objective is not to inform but to entertain; if anyone really knew what was going on, they would not be standing with a microphone on the floor of the NYSE telling you what happened at 4:00 pm, but would have acted on that information before the market opened, quietly from a yacht in the Mediterranean (and it's unlikely they would be all that interested in sharing that information with you);
3.) when the minority of players who know what is going on act, they leave telltale signs on the markets in the form of volume and price action; these signs are of greatest use when they contradict the prevailing "wisdom" propagated by financial news;
4.) most financial letter writers, active mutual funds, and other so-called experts are better salesmen than investors; they make their money from selling subscriptions or charging fees for management; few outperform a passive index.

That being said, it does not mean all market action is random or that it is impossible to beat the market averages or consistently make money in all market cycles, only that it is emotionally very hard because it requires taking positions that are unpopular, even at times insane.  Using a trend-following approach requires buying prices at relative highs after they have usually enjoyed a good rally (but often when they remain far below more distant highs), being wrong about as often as you are right (in terms of percentage of times a trade closes profitable), but making most of your money from a few trades, perhaps as few as 1 in 10.   If your losses are much smaller on your losing trades than your gains on your winning ones, you will make a very comfortable living trading and enjoy the intellectual satisfaction that good fishermen and hunters have always known (which is why I think our brains evolved to be drawn to trading).

Enough philosophy.  On to other markets:


Homebuilders also followed through on their rally on very strong up volume with much lower down volume.  A very nice chart with a 15-20% pop from the breakout a few weeks ago.  If high volatility like this makes you nervous, you can move your stop up to break-even (after commissions) or follow the 3-day low, which is often the first thing to be violated when a move is showing signs of exhaustion.  If homebuilders double from here and you are stopped out at 15-20% you may deeply regret it, but that is the tradeoff.  I would prefer to let the homebuilders run.  My sense is the economy is much, much stronger than anyone anticipates and these things have a way of turning around much quicker than anyone realizes.  Homebuilders have sold off so brutally (conventional wisdom says "everyone knows no Americans want to buy new homes and besides there is a huge backlog of foreclosed properties" but conventional wisdom and then some has long been priced into these stocks).  


The Euro is another position I took recently I consider a no-brainer.  With all the action near the top of the 20-day range and all the news about Greece and Italy so gloomy, something had to give.  The markets said buy and I did.  In the world of currencies where fortunes can be made with a 2 or 3% move, this 2% gap move up is huge (although I used the far less levered ETF here rather than futures for which I feel I am getting too old).


Switzerland mirrored Wall Street's action, performing a bit better actually over the past couple weeks.  As a side note, if you want to take a position in a country, always choose a passively-traded, liquid iShares country web rather than an actively traded closed end fund whose share prices rise and fall not just on the underlying but on anticipations about the future direction of the underlying (as well as the wisdom of the active investors).  Contrast the 10-15% pop since breakout here with the sell-off and then recover to breakeven of EWZ, for example.

As with any economic recovery, you would expect industrials to be roaring ahead and they are:

The fact that consumer staples is not doing quite as spectacularly is an indication smart money is shifting away from relatively safe plays into more economically-sensitive ones:


Technology continues to be choppy but moving in the right direction:


There is an old adage that no true bull market can exist unless led by financials.  The performance of XLF, as much as I politically detest the behavior of the Marie Antoinettes in charge of these publicly-bailed-out companies, should be encouraging then:


I missed this when on vacation, but Gold has triggered a buy signal at 165 at almost the exact price you would have exited in September to close out a profitable trade from 152:


As always, stay tuned.

Market rally continues: SPY (123.97) gaps up across resistance

Friday 10/21/11 after market close.


This chart shows SPY breaking above both its 20-day trailing high and clearing the last two relative highs in the 122.5 area.   After a choppy week in which most of the action was in the upper quartile of the 20-day range, the market gapped higher and closed at its highs for the day, all bullish.  The only caveat was that volume was only average.


I feel particularly proud of this chart.  After banging the table a couple days ago about all of the bullish features of the homebuilders (XHB), I took a position and there was very nice follow-through today, again on above-average volume.  A 4% surge with no resistance in sight is a very good sign, especially after the failed bear trap in October (a breakdown below the 20-day low without any follow-through and a quick rally off the lows.  


The Euro is doing what it is supposed to do - rallying after its breakout then consolidation after falling back into its range.  It would be nice to see it close decisively above the breakout point, however.


Switzerland also had a nice day, rising 2.76% in dollar terms (versus a 1.90% for the SPY).  Switzerland sold off quite a bit more than the United States from peak to trough (June to September - about a 30% loss), so I would expect a more spirited rise.  Switzerland is in much better fiscal shape (the government is running a surplus) and its economy is by many measures much stronger than the United States.